Andean Group - February 2008 (ISSN 1741-4466)

The economy grew by 8.3% in 2007. This was well above the government's original forecast of 6.2%.

The only problem with this faster-than-expected growth was that inflation kicked up. It came in at 3.93%. The economy and finance minister, Luis Carranza, had originally forecast that inflation in 2007 would be 2.5%. He said that the government was not bothered about inflation because it was largely imported. By this he means that the surge in food prices is largely the result of higher commodity prices.

The government is forecasting that GDP growth in 2008 will be 6.2% and that inflation will be 2.4%. Carranza argued that the strong growth would soon start to have effect on unemployment. He said that even if the external economic environment turned against the country, Peru would not fall into a recession.

The country's big problem, however, is reducing poverty. Even in Carranza's upbeat presentation, poverty had only fallen by two and half percentage points in 2007 from afflicting 44.5% of the population afflicting 42%.

The temptation for the government will be to spend more money on anti-poverty programmes. As Carranza himself said, the country is running a fiscal surplus of 3% of GDP, up from 2% in 2006. For 2008 Carranza expects the fiscal surplus to fall to zero.